Teladoc Health (TDOC -2.40%) started this year with a goal of improving its efficiency and making progress on its path to profitability. So far, it has been delivering on its promises. It reported earnings that met or beat its forecasts in the second quarter, and raised the lower end of its annual guidance range. Importantly, management also spoke about a new focus that could further boost efficiency.
That focus is on an area that everybody has been talking about lately: artificial intelligence (AI). Teladoc calls it a "key theme" for the year. But could AI actually be a game-changer for the company?
A focus on the "whole person"
First, a bit of background on Teladoc. It's a leader in telemedicine, serving more than half of Fortune 500 companies. It sells integrated care packages to companies and organizations, with the goal of becoming their "whole person" service provider. So, at Teladoc, you can find primary care, specialists, management for chronic conditions, and mental health services.
And the company constantly is evolving its platform. For example, it's launching a weight management program later in the year. Teladoc also sells mental health services directly to potential patients through its BetterHelp business.
In the past, the company's revenue grew by leaps and bounds -- but it struggled to convert those rising revenues into profits. This year, though, the virtual care leader shifted its priorities somewhat -- it still aims to grow revenue, but now, it's putting a solid focus on its path to profitability. And here, it's clear efficiency is important. This brings us to the subject of AI.
Teladoc says it's now using about 60 of its own AI models for various tasks across its business. For example, it uses AI to connect patients to the right providers, based on various criteria such as patient preferences and the provider's specialties. In its BetterHelp unit, AI sifts through 100 different criteria before matching a patient to a therapist. Teladoc says its platform connects a patient to a provider every 30 seconds, a record in the industry.
Benefits that are showing up in earnings
This surely makes things easier for patients. AI also helps Teladoc bring members personalized content -- something that could lead to better outcomes and patient loyalty. All of this means AI may help Teladoc extend its leadership in the high-growth telemedicine market.
The use of AI also saves Teladoc time and helps it make better use of its resources. And all of these benefits are showing up on the bottom line. The company says its use of AI so far has led to stronger gross margins.
TDOC Gross Profit Margin data by YCharts.
Just recently, Teladoc said it would use Microsoft's Azure OpenAI platform to automate a lot of the paperwork involved in virtual visits. This is to save doctors time, and, once again, increase efficiency.
Now, let's get back to our question. Could AI be a game-changer for Teladoc? The technology might not completely transform the telemedicine business overnight. But, as we've seen so far, it can streamline certain processes and deliver more personalization to patients. This results in higher margins as the company becomes more efficient -- and higher revenue as patients keep coming back.
Where AI will go from here
Companies are likely to keep finding new uses for AI, and some of them may offer other ways for Teladoc to excel. So the fact that it's investing in the technology now is positive. The timing also is right because AI could help Teladoc achieve the big goal it's working toward now: profitability.
What does this mean for you as an investor? If you're cautious, Teladoc still may not be the right healthcare stock for you right now. Instead, you may favor a profitable pharma company or medical device maker that offers dividend growth, for example. But, if you don't mind a bit of risk, Teladoc is a great company to buy and hold. It has delivered on its promises since the start of the year -- and AI could provide it with an extra engine to power earnings down the road.
